Case Study

WHEN WE CREATE OUR OWN MARKET LIMITATIONS

In the mid-1960s a new electronics company was founded with a unique high-tech product a new type of computer. Thanks to its engineering know-how, TALOVA ZAMBIA LTD had a virtual lock on its market niche. There was enormous demand for its products, and there were enough investors to guarantee no financial constraints.

Yet the company which began with meteoric growth never sustained its rapid growth after its first three years. Eventually it declines into bankruptcy.

That fate would have seemed unthinkable during TALOVA ZAMBIA LTDs first three years, when sales doubled annually. In fact, sales were so good that backlogs of orders began to pile up midway through their second year. Even with steadily increasing manufacturing capacity (more factories, more shifts, more advanced technology), the demand grew so fast that delivery times slipped a bit. Originally they had promised to deliver machines within eight weeks, and they intended to return to that standard; bust with some pride, the top management told investors, Our computers are so good that some customers are willing to wait fourteen weeks for them. We know its a problem, and were working to fix it, but nonetheless they are still glad to get the machines, and they love em when they get em.

The top management new that they had to add production capacity. After six months of study, while manufacturing changed from a one-shift to a two-shift operation, they decided to borrow the money to build a new factory. To make sure the growth kept up, they pumped much of the incoming revenue directly back into sales and marketing. Since the company sold its products only through a direct sales force, that meant hiring and training more sales people. During the companys third yea, the sales force doubled.

Despite this, sales started to slump at the end of the third year. By the middle of the fourth year, sales had dropped off to crisis levels. The curve of sales, so far, looked like this:

Revenues

At this point, the new factory came on-line. Weve hired all these people, said the vice president of manufacturing. What are we going to do with them? top management began to panic about what to tell their investors, after they had spent all this money on a new manufacturing facility. It was as if everyone in the company simultaneously turned and looked at one person: the marketing and sales vice president.

Not surprisingly, the marketing and sales vice president had become a rising star in the company. His force had done so well during the initial boom that he had anticipated a promotion. Now there was slump, and he was under heat to turn the sales around. So he took the most likely course of action. He held high-powered sales meetings with a single message: Sell! Sell! Sell! he fired the low performers. He increased sales incentives, added special discounts, and ran new advertising promotions describing the machine in an exciting new way.

And indeed sales rose again. The sales and marketing VP found himself once more hailed as a hero, a born again motivator who could take charge of a tough situation. Once again, TALOVA ZAMBIA LTD was in the happy position of having rapidly rising orders. Eventually, backlogs began to grow again. And after a year, delivery times began to rise again first to ten weeks, then to twelve, and eventually to sixteen. The debate over adding capacity started anew. But this was still more cautious. Eventually approval of a new facility was granted, but no sooner had the papers been signed than a new sales crisis started. The slump was so bad that the sales and marketing VP lost his job.

Over the next several years, and through a succession of marketing managers, the same situation recurred. High sales growth occurred in spurt, always followed by periods of low or no growth. The patter looked like this:

Revenues

10 years

The company prospered modestly, but never came close to fulfilling its original potential. Gradually, the top managers began to fear that other firms would learn how to produce competing products. They frantically introduced ill-conceived improvements in the product. They continued to push hard on marketing. But sales never returned to the original rate of growth. The wonder went out of TALOVA ZAMBIA LTD. Eventually, the company collapsed.

In his final statement to the lingering members of his executive team, the CEO said, we did great under the circumstances, but the demand just isnt there. Clearly, it was a limited market - a niche which we have effectively filled.

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Questions:

1. describe the archetypes at play in this case study
2. explain where the leverage lies in the case at hand
3. identify the problem symptom, the fundamental response and the symptomatic response
4. draw the complete structure prevailing at TALOVA ZAMBIA LTD from the interaction of the existing archetypes,